China is under deflationary pressure and it is necessary to prevent deflation. However China is far away from deflation, Deputy Governor the People's Bank of China Su Ning said.

Su said deflation is generally accompanied by a decline of money supply and credit. At the end of January 2009, China's broad money increased by as much as 18.8%, and in January new loans totaled as high as 1.62 trillion yuan. There is no lack of money.

From the perspective of prices, the National Bureau of Statistics announced CPI in January 2009 was 1%. At present, the prices are lower due to declining domestic demand, but this is mainly because of shrinking external demand which has led to a drop in domestic demand. The implementation of the policy of expanding domestic demand will gradually offset the impact of shrinking external demand on domestic demand and prices.

Su added that it was true that China's economic growth was on a downward trend. The growth rate may drop further in the first quarter or first half of the year, but with the implementation of boosting domestic demand policy, economic growth will rebound.

"Even now, with the economic downturn, we should not come to the conclusion that China has entered a period of deflation," Su Ning said.

By People's Daily Online